How to Protect Home Equity From Creditors
Homeowners facing mountains of debt and possible bankruptcy can rest assured that their homes may continue to be a safe place. Several federal and state laws exist to help homeowners protect their home equity from creditors. A few financial tricks exist that do the same.
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Instructions
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Use your spouse. Half of the states in the United States have tenancy-by-entirety laws that prohibit creditors from taking the home of a married couple. Creditors can't take property from anyone but the person who made the debt, so a wife cannot be responsible for her husband's delinquent car loan. Check to see if your state has such a law.
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Use the law. Most states have homestead exemptions that prohibit creditors from taking all of your home equity. In some states, it may be as little as $2,500. In others, however, your home equity is protected completely. Find out where your state stands on the issue; you may not have to worry about losing your home over something like a credit card bill.
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Hire an attorney and/or an accountant. There are several legal maneuvers such as a dual living trust, that will allow you to protect your home from creditors. The laws governing the practices are tricky, so consult an attorney or accountant.
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Tips & Warnings
If your state has meager creditor protection laws, try clearing things up the old fashioned way. Pick up the phone and call the creditor. They often offer payment arrangements or settlement (reduction of the balance).
Consult an attorney even after you find out what the law is in your state. These laws have strict guidelines which, if mishandled, can result in a heap of legal trouble.
Do not use relocation as a way to beat a debt. The homestead exemption, for example, penalizes those who move to another state to take advantage of a larger exemption.
